Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

New U.S. Housing Market Crisis in the Making? What's the Solution?

Housing-Market / US Housing Jun 08, 2015 - 10:46 AM GMT

By: Mike_Shedlock

Housing-Market

Home ownership rates are sinking and demographics are part of the reason. But does that constitute a new housing crisis?


Housing: A Crisis in the Making

The Wall Street Journal writer Nick Timiraos makes the case in New Housing Crisis Looms as Fewer Renters Can Afford to Own.

Last decade's housing crisis has given way to a new one in which many families lack the incomes or savings needed to buy homes, creating a surge of renters and a shortage of affordable housing.

The latest crisis looks very different from the subprime mania of the early 2000s, but it does share one trait: Policy makers in Washington appear either unaware or unwilling to do much about it.

The U.S. homeownership rate is now below where it stood 20 years ago when President Bill Clinton launched a national campaign to encourage more Americans to buy homes. Conventional wisdom says the rate, now at 63.7%, is leveling off to where it was for decades before the housing-market peak.

But this is probably wrong, according to research from the Urban Institute, which predicts homeownership will continue to slip for at least the next 15 years.

Demographics tell the story. The Urban Institute researchers predict that more than 3 in 4 new households this decade, and 7 of 8 in the next, will be formed by minorities. These new households -- nearly half of which will be Hispanic -- have lower incomes, less wealth and lower homeownership rates than the U.S. average.

The declines reflect a surge of new renter households, which is boosting rents. Together with tougher mortgage-qualification rules, this will leave households stuck between homes they can't qualify to purchase and rentals they can't afford, says Ron Terwilliger, who spent two decades running Trammell Crow Residential, one of the nation's largest apartment developers.

As rental households devote a greater share of their income to rent, families could face greater challenges in saving for a down payment. This could restrain a housing market that has failed to provide any real lift to the economy in the current expansion.

What's to be done? Given budget pressures, it may not be realistic to expect the government to spend any more money on housing than it already does. Thus, the focus now should be on reallocating what is already committed, says Mr. Terwilliger, a Republican, who this month will formally launch a foundation designed to start these conversations. His goal is legislation after the 2016 election that realigns housing policy with the shifting dynamics.

Breaks for Apartment Builders

Given that Terwilliger spent two decades as one of the nation's largest apartment developers the answer should be easy to figure out. He wants to end tax breaks for home ownership to subsidize new home owners and "free up funds for the rental side."

His complaint: 75% of the housing tax breaks go to the top 20% of individuals. That is hardly shocking given the top 20% buy the most expensive homes and therefore pay the most in interest.

Timiraos, buys all Terwilliger's nonsense hook line and sinker, finishing the WSJ article with "Politically, none of this will be easy . Some will say it's a zero-sum game -- helping renters at the expense of owners. Not so, says Mr. Terwilliger. If renters can't ever become homeowners, who will buy those homes when today's homeowners need to sell?"

Housing Crisis Past and Present

The 2015 housing crisis was caused the same way as the one in 2007: Interference by the Fed, by Congress, by local officials wanting to create affordable housing.

Terwilliger wants a combination of affordable housing and affordable renting. Lovely.

Driving up home ownership rates does is guaranteed to do one thing: drive up prices.

Fannhie Mae, Freddie Mac, and hundreds of other government programs culminating with president Bush's "Ownership Society" all contributed to make housing unaffordable.

The government has no business promoting one form of living over another.

Self-Correcting Problem

Terwilliger ends with the question "If renters can't ever become homeowners, who will buy those homes when today's homeowners need to sell?"

The answer should be obvious: Prices will fall until there is a pool of buyers!

In the wake of the great financial crisis, home prices actually fell to the point of being affordable. Few seemed happy with the result. The Fed wanted to prevent deflation and in the greatest financial experiment in history unleashed round after round of QE.

Asset prices recovered, but wages didn't. As a result, homes are once again unaffordable.

Does Terwilliger want affordable housing or not?

If government and the Fed got out of the way, there would be no problem. Instead, Terwilliger wants the government to "do something".

I suggest the government and the Fed have done far too much already.

Solution is Undoing

Instead of promoting something, a process that has failed every time, how about undoing everything that contributed to the mess.

My proposal

  • Eliminate Fannie Mae
  • Eliminate Freddie Mac
  • Eliminate the FHA
  • Eliminate rent rent controls
  • Eliminate itemized deductions and replace with a flat tax

That's the real solution to the problem, not more self-serving affordable housing nonsense from people with a vested interest in promoting something for their own benefit.

By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Click Here To Scroll Thru My Recent Post List

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com .

© 2015 Mike Shedlock, All Rights Reserved.

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Mike Shedlock Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in